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Exam 23: Financial Statement Analysis

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Question 1

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In a vertical analysis of the income statement data, the cost of goods sold most likely would be expressed as a percentage of:

A) net income.
B) net sales.
C) gross profit on sales.
D) total expenses.

E) A) and B)
F) A) and C)

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Question 2

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Cost of goods sold divided by average inventory equals the----------- .

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Question 3

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If long-term liabilities are $62,000 and total assets are $480,000, what percentage of total assets are long-term liabilities?

A firm has current liabilities of $60,000, stockholders' equity of $180,000 and total assets of $300,000. The percentage of total liabilities to total assets is:

Trend analysis looks at:

Liquidity is the ability of a company to pay its debts when due.

The following financial information was taken from a firm's accounting records on December 31, 2019. Use this information to determine the items below. $\begin{array}{ll}\text { Cash } & \$ 55,000 \\\text { Accounts Receivable (Net) } & 140,000 \\\text { Merchandise Inventory } & 265,000 \\\text { Property, Plant, and Equipment (Net) } & 500,000 \\\text { Total Assets } & 960,000 \\\text { Accounts Payable } & 120,000 \\\text { Bonds Payable, 2028 } & 400,000 \\\text { Total Liabilities } & 520,000\end{array}$ (1.) Working capital (2.) Current ratio (3.) Acid-test ratio (4.) Ratio of stockholders' equity to total liabilities

The current ratio is a measure of the ability of a company to pay its currently maturing debts, which is also known as------------- .

All of the following are shortcomings of financial statement analyses except:

Current assets divided by current liabilities is the---------- .

What is the PE ratio? How is it calculated and why is it that the PE ratio for a privately held company often cannot be calculated?

Using the comparative income statement given below, prepare a horizontal analysis of all items. Carry all calculations to two decimal places and then round to one decimal place.

In 2019, net sales were $672,000 and cost of goods sold was $450,000. In 2018, net sales amounted to $600,000 and cost of goods sold was $400,000. In a comparative income statement, using vertical analysis, the 12% increase in net sales will be presented in the percentage column.

The following financial information was taken from a firm's accounting records on December 31, 2019. Use this information to determine the items below. $\begin{array}{ll}\text { Cash } & \$ 56,000 \\\text { Accounts Receivable (Net) } & 191,000 \\\text { Merchandise Inventory } & 362,000 \\\text { Property, Plant, and Equipment (Net) } & 454,000 \\\text { Accounts Payable } & 139,000 \\\text { Bonds Payable, 2028 } & 160,000\end{array}$ (1.) Working capital (2.) Current ratio (3.) Acid-test ratio

The price-earnings ratio compares the present market value of a corporation's common stock with the earnings per share of that stock.

In horizontal analysis, the earlier period is called the ----------period.

Where the current ratio measures a company's ability to pay its current debts using current assets on a dollar for dollar basis, working capital provides a similar measure by providing the actual margin of security afforded to short-term creditors.

The excess of current assets minus current liabilities is known as----------- .

Ratios provide useful, stand-alone tools to assess management performance and improvement efforts.

Because the number of shares of common stock outstanding during the year can fluctuate, computing return on common stockholders' equity is not a useful indicator of profitability.